False Premises of Austerity Measures

This past year we have seen an explosion of social unrest throughout the Global North – in Greece, France, states in the US, the UK – as austerity measures continue to be imposed on debt-ridden states. The debate about debt is often framed as one in which governments need to pay their bills and the way to do this is by slashing government spending.

There are a number of problems with how this ‘debate’ is framed. In a balance sheet there are credits and debits, or revenue earning activities and expenses, so if one is indebted, one can raise revenues and/or cut expenses. Austerity measures are sold on the premise that ‘paying one’s bills’ will happen by cutting expenses – not by gaining revenues. In other words, it is assumed that states like Greece will not pay their bills by earning more.

This is a convenient ‘assumption’ because many debts came from policies that stripped governments of revenue-generating capabilities. Governments around the world got into trouble by offering tax breaks, tax holidays, low tariffs and subsidies to the private sector – and usually to its biggest players. In this environment companies have been hopping from one tax scheme to the next, from one lower than the previous one, and on and on.

And not just. Under a system of “corporate welfare” states subsidize private industry through infrastructure development, all at considerable cost. Walmart is one exemplary beneficiary.

And not just. Under privatization governments have sold public assets, which in the short run actually translates into a windfall in state coffers. (Take, for instance, Egypt’s GDP figures in the late 1990s and early 2000s: The country’s GDP growth skyrocketed as it sold huge public assets into private hands.) But the huge surpluses don’t last long before being eaten up by public-private contracts. The government puts up for bid private contracts for the delivery of (currently or formerly) public services. Private contractors bid to provide a service that the government used to provide or could have provided. The government pays the contractors, often at exorbitant rates, often going into debt, to do something it could have done itself. (See this previous blog entry on public-private partnerships in Egypt.)

Take the US state of Wisconsin and the debacle of austerity that in early 2011 led the state legislature to end collective bargaining rights and cut funding for public services, including education. This was forced through under the premise that the state’s pension and other employee benefit trust funds were bankrupting the government. A closer look revealed however that the fund is nearly entirely funded and that it was not entirely so in part because of $195 million annually in Wall Street investment manager fees. If Wisconsin managed its own fund rather than contracting out management to Wall Street, then the fund would require a modest contribution from the government. And the government would be in an even better shape to ‘pay its debts’ if Governor Walker hadn’t early in the year pushed through $127 million in tax cuts!

These austerity measures have been the raison d’être of multilaterial agencies (International Monetary Fund, World Bank) in the Global South for the last thirty or more years, pushing debt-ridden countries like Egypt into slashing government spending in a way that led to major social dislocation and unrest. Without hard currencies (dollars, Euros, yen) countries in the Global South were sold the promise of devaluing their currencies in order to make their exports cheaper. The idea would be that they would earn hard currencies needed to buy industrial equipment with revenues from primary commodity exports. But this policy led to a rise in imports, especially essential staples, accompanied by a drop in the prices of commodities exported.

These ‘structural adjustments’ ushered in the ‘developing world’ an era of rising inequality, lower living standards, and heightened political repression (as ruling regimes undemocratically adopted policies that were unpopular). It is in this context – of decades of austerity – that we are now witnessing the Arab Spring and growing dissent to the last push of ‘adjustments’ in countries in the North (the US, European Union, Canada).

And it is based on false premises. If debt-ridden states ended corporate welfare in the form of subsidies, tax breaks and the like, then this would be the start of getting out of debt. If governments ended public-private contracts, then states would stop going further into debt by accumulating massive expenses in the form of contracts. If states ended currency devaluations, then trade imbalances may begin to correct themselves.

An Orwellian

It didn’t occur to me until I re-read George Orwell’s Animal Farm that I have an Orwellian lesson to teach and a warning to issue. The lesson is simply one of the miseducation of Americans. After reading Animal Farm for the first time since I was in grade school, I realized how ironic it was that most children in America read this book in school. I read Ann Patchett’s forward of the book’s 2003 centennial edition after reading the book, and then it became clearer to me the source of this irony. She writes:

“We live in an age, in a country, where the right to question authority is so much a part of our societal fabric that the remainder to do so comes on bumper stickers. Perhaps we are far enough away from the publication of Animal Farm, with enough generations having been permeated by its logic, that it’s time to ask ourselves the question: to what extent did Orwell create us? The book is no longer a red flag shot out toward fascist regimes, but an introduction to fascism and totalitarianism.”

That Patchett so brazenly claims that the “we” know so deeply our right to question authority, when many just recently nodded with approval as the US government launched an invasion and occupation of two countries on blatantly false pretenses, is hysterical. But more, by narrowing its lessons to the horrors of fascism and totalitarianism, she and the American school teachers who teach Animal Farm miss half the story.

Orwell is clearly warning us against fascism and totalitarianism, but he is also taking a deadly stab at capitalism. After all, he is not just showing the horrors of what happened in the Soviet Union following the revolution, but he is in effect equating the Soviet Union with its neighboring capitalist societies.

This becomes clearly spelled out at the end of Animal Farm, but even before the end Orwell paints an unseemly image of the farm’s neighbors, Mr. Pilkington of Foxwood and Mr. Frederick of Pinchfield – the two neighbors of the Soviet Union, England and Germany, respectively, or what we may generally refer to as the Allies and the Axis in the context of World War II. Mr. Frederick and his men storm Animal Farm (Germany invades the Soviet Union), and toward the end of the war Napoleon/Stalin and his pigs form a cozy alliance with Mr. Pilkington, the Allies.

There they are sitting together snuggly by the dining room table in the farm house, Napoleon, the other pigs, Mr. Pilkington and his farmer friends. Mr. Pilkington stands to give a toast, exclaiming how pleased he is that any mistrust and animosity has come to an end.

“Too many farmers had assumed, without due enquiry, that on such a farm [one owned and operated by pigs] a spirit of license and indiscipline would prevail. They had been nervous about the effects upon their own animals, or even upon their human employees.”

But, he explains, all these fears have been dispelled. From their visit to the farm that day they witnessed an exemplary discipline and orderliness on the farm. The animal workers on Animal Farm did more work and received less food than even on their own farms – and this would surely be introduced in their own farms!

Pilkington was toasting to the pigs and once again dismissed the differences between them:

“Was not the labour problem the same everywhere?”

“If you have your lower animals to contend with, we have our lower classes!”

Those at the table roared. Pilkington once again congratulated them “on the low rations, the long working hours, and the general absence of pampering which had been observed on Animal Farm.”

The friendship was sealed. The ruling classes on both farms not only came to an agreement, but it became difficult to tell the difference between them. And it is on this note that Orwell chooses to end:

“The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

By the end of World War II, for Orwell the Soviet Union had failed in its attempt at the socialist project, not only because it had turned into a horrific dictatorship, but because it had become even more oppressive and exploitative than its capitalist neighbors. This is not a surprising conclusion from an author who was a life-long, committed anti-imperialist and socialist.

An Orwellian warning is simple: Absolutely don’t blindly listen to what your leaders tell you. At this historical moment of popular uprisings and revolutions, don’t listen to the fear-mongering regime that is telling you of foreign agents causing unrest. Don’t listen to political leaders telling you that the only solution to the economic crisis is lower wages, less security for workers. Only listen to the heart that guides you to justice.